How Much Lower Can AstraZeneca plc, GlaxoSmithKline plc, Shire PLC And Hikma Pharmaceuticals Plc Go?

Do AstraZeneca plc (LON: AZN), GlaxoSmithKline plc (LON: GSK), Shire PLC (LON: SHP) and Hikma Pharmaceuticals Plc (LON: HIK) have further to fall?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It’s been a rough year so far for pharma stocks. After a record-breaking 2015, when valuations across the industry spiked following a wave of M&A activity, the sector has been on the back foot ever since the beginning of 2016.

Deals gone wrong 

Hikma Pharmaceuticals (LSE: HIK) is the worst performing UK pharma large-cap. Shares in the company have fallen by 17% year-to-date thanks to its botched acquisition of Roxane Laboratories from Boehringer Ingelheim. It emerged last month that Roxane Laboratories’ sales weren’t as high as initially expected and even though the deal had been agreed between the two parties, Hikma declared that it was renegotiating the purchase price.

Last week, alongside its full-year 2015 results, Hikma announced that it was paying $535m less cash for Roxane Laboratories to reflect lower sales. Still, the company’s results for 2015 marginally beat expectations with pre-tax profits falling 12% on revenues down 3.3%. 

Even after recent declines Hikma’s shares trade at a forward P/E of 21.1 and City analysts expect the company’s earnings per share to contract by 14% this year as a result of the Roxane deal. A rich valuation of 21.1 time forward earnings leaves little room for error if the company slips up again.

Similarly, shares in Shire (LSE: SHP) have fallen 16.5% year-to-date on concerns that the company is overpaying to acquire peer Baxalta. However, these declines have left Shire’s shares looking extremely attractive on a valuation basis.

When the deal between Baxalta and Shire completes, the enlarged group will be the world’s largest producer of rare disease treatments. And after recent declines, Shire trades at a forward P/E of 14 for the year ending 31/12/2015 and 12.5 for the year ending 31/12/2016. The shares currently support a dividend yield of 0.5%.

Plenty of uncertainty 

AstraZeneca’s (LSE: AZN) shares have lost 15% of their value so far this year, following the wider pharma sector lower. 

Astra’s future depends on its ability to bring its pipeline of treatments to market. If the company can successfully bring a wave of new products to market to replace the drugs that are losing patent protection this year, then Astra’s future could be bright. But there’s plenty of execution risk here. Astra’s shares currently trade at a forward P/E of 13.9 and yield 5%. With so much uncertainty about Astra’s future, there could be better investments out there.

A year of growth 

Finally, GlaxoSmithKline (LSE: GSK), which is the best performing large listed UK pharma stock. Shares in the company have gained 1.5% excluding dividends so far this year, and there could be further gains to come. 

Management expects Glaxo’s core earnings per share figure to grow by double-digits this year, the first such increase the company has been able to achieve for five years.

If Glaxo can hit this target, then it will have shown investors that it’s on track with its restructuring programme, which should then spark a rally in the company’s shares. Glaxo’s shares currently trade at a forward P/E of 16.2 and support a yield of 5.9%.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns shares of GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca, GlaxoSmithKline, and Hikma Pharmaceuticals. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »